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‘We understand what needs to be fixed,’ Tesla says after missing Model 3 production goals

Tesla Model 3 sedan. (Tesla Motors/AP)
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After Elon Musk unveiled the Model 3 at Tesla’s Fremont, Calif., headquarters in July, the Tesla chief executive set an aggressive production schedule for his company’s first mass-market vehicle.

The goal, he said, was for Tesla to produce 1,500 Model 3s in the third quarter, a sizable jump en route to increasing production to 20,000 vehicles per month by the end of the year.

But Monday, the company said that it had produced only 260 of the 1,500 intended sedans during that period. The company attributed that to production issues.

Tesla’s stock dropped by as much as 1.7 percent to $335.76 during after-trading hours.

“Model 3 production was less than anticipated due to production bottlenecks,” Tesla wrote in an investor letter. “Although the vast majority of manufacturing subsystems at both our California car plant and our Nevada Gigafactory are able to operate at a high rate, a handful have taken longer to activate than expected.”

The company noted that there are “no fundamental issues with the Model 3 production or supply chain.”

“We understand what needs to be fixed and we are confident of addressing the manufacturing bottleneck issues in the near-term,” the letter added.

The low production numbers aren’t entirely surprising. During the Model 3’s rollout, Musk told the massive crowd of employees, media and company officials that Tesla was about to enter “production hell.”

“As the saying goes, if you’re going through hell, keep going!” he said.

During a second-quarter earnings call, Musk, seeking to downplay the importance of the production benchmarks, urged investors not to “get too caught up” in “calendar boundaries.”

Musk said Model 3 production would climb to 50,000 a month by the end of next year. It’s a steep increase in production — making 500,000 vehicles in a year, as Tesla has vowed to do, would mean increasing its 2016 production almost sixfold, Reuters noted at the time.

Production problems hampered the launches of Tesla’s Model S sedan and the Model X SUV and led to a decline in shipments on two occasions over the past year. But Tesla said in the investor letter Monday that their deliveries increased 4.5 percent compared with the same period last year.

Musk told Business Insider in July that the company has learned from the challenge of rolling out previous vehicles and has designed the Model 3 to be as minimalistic and easy to build as possible.

“We learned a significant amount of lessons with 3,” he said. “There’s nothing in that car that doesn’t need to be there. Everything has a compelling reason.”

The Model 3 — touted as the first “mass market” electric car — will start at $35,000, reach 0 to 60 mph in 5.6 seconds and have a top speed of 130 mph.

A Model 3 with every premium option would cost about $60,000, according to the latest details released by the company. The car has a range of 220 to 310 miles.

When asked whether production delays led to any cancellations, Tesla pointed to Musk’s second-quarter statement noting that there have been 450,000 net reservations.


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